My New Blog

I have thought I would share commentary from Bill Fisher, at Rate Watch. And, I thought it might be helpful for those of us who are watching rates, inflation, Middle East unrest, gas prices, and Congress. There are a lot of pressures on the economy right now.

You have Gadaffi shouting and shooting at his own population, Egypt, Iran, Tunisia, Algeria, Bahrain, Djibouti, Iran, Iraq, Jordan, Oman, and Yemen have all seen major protests, and minor incidents have occurred in Kuwait, Mauritania, Morocco, Saudi Arabia, Somalia, Sudan and Syria; crude at about $102 a barrel, and gasoline at budget-bruising highs at the pump, does it seem like a likely time for interest rates to rise? Well they have for two days. This is all very difficult for most consumers to understand…and usually less than crystal-clear to the rests of us. Here’s what Mr. Fisher has to say:

“The point of this little article, therefore, is simply to remind you constantly to explain to your clients how and why Treasury securities rise and fall. If you can do so, and if they then have an experience of being able to predict (or, at least, understand somewhat) the seemingly inexplicable moves of rates, you will have a trusting client working with you. “

“Why, for example, did Treasury rates rise a bit on Wednesday afternoon?”

“It turns out that the Fed issued a “beige book” report in which it asserted that the overall economy continues to improve as we move into 2011. Even with dramatically higher fuel prices, the Fed insists that inflation remains benign. The higher prices, after all, could change in a day. They are not based on oil market fundamentals; they arise from today’s tumultuous and constantly changing political problems that have broken out all over the world.”

“Still, there are concerns that manufacturers and retailers may not be able to continue passing the higher costs of oil and other commodities to their customers, especially as fuel and commodity prices remain so much higher than in the recent past. There is also concern that consumers’ retail purchases will be minimized greatly by the added expense of gasoline and other basic (like food).”

“But there it is. Treasury security yields rise when it appears that the economy is doing well. They rise precisely because the markets fear a sustainably improvement economy is the harbinger of higher inflation. When the economy stumbles a bit and appears to need some support, Treasury security yields tend to decline—to help the economy rebuild its strength.”

“Now, this all seems rather counterintuitive to most consumers…but Treasury yields ARE counterintuitive. If the value of an existing security rises, that is because market yields for that security have fallen. This is a formula most of us need to remind ourselves of whenever rates rise or fall.”

“Bottom line, it’s rather simple. Buy $10,000 face value of 10-year notes. Let’s say those notes bear a yield of 3.45% when you buy them, meaning you’ll receive 3.45% as the notes are repaid, along with your original investment. Let’s say the market changes, as it does incessantly, and 10-year notes are now worth 3.35%. Your existing notes bearing a 3.45% yield then become slightly more valuable because they will return a higher rate of interest than today’s T-notes.”

“Thus, lower yield means higher value for Treasury securities. And vice versa. In some abstract realm of the brain, it makes perfect sense, though most of us have to stop and think it through all over again. The $10,000 face amount is a value that never changes. Only the yield changes, and it moves the value up and down that you can receive if you resell your Treasury securities on the open market. (If you hold your Treasury securities to maturity, you can forget this complex file gumbo.)”

To many of the real estate professionals this is very old news. What is not old news is the act of explaining it to clients who are still a bit wet behind the ears. I hope this helps a bit.

FHA has increased Annual MI premiums across the board by .25 Points effective with case numbers issued on or after April 18, 2011.

Just when you thought things were getting stable, the Federal Housing Authority has raised the mortgage insurance annual premium, again!  On October 4, 2010 FHA rasied the premium on mortgages with a loan to value greater than 95% from .55% to .90%.  This next increase will take the premium to 1.15%.  You can click here to read the FHA press Release.   This premium change was detailed in President Obama’s fiscal year 2012 budget, also released February 14, 2011, and will impact new loans insured by FHA on or after April 18, 2011. 

According to FHA Commissioner David H. Stevens, “After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster the FHA’s capital reserves and help private capital return to the housing market.”  According to Stevens, “This quarter point increase in the annual MIP is a responsible step towards meeting the Congressionally mandated two percent reserve threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments.”

On average, new FHA borrowers will pay approximately $30 more per month.  This marginal increase is affordable for almost all homebuyers who would qualify for a new loan.  Existing and HECM loans insured by FHA are not impacted by the pricing change.

Here's a chart of the premium on a $100,000 loan amount with an LTV over 95%

$100,000 Loan Amt	Pre 10/4/2010	Post 10/4/2010	4/18/2011
Annual Factor	.55%	.90%	1.15%
Monthly Premium	$45.83	$75.00	$95.83

In just over 6 months the government has doubled the monthly mortgage insurance cost to the borrower.  Besure your mortgage professional has taken this change into account to be sure you or your borrower still have a qaulifying debt to income ratio.

If you have any questions feel free to contact me:

Brett Brough
918-271-0062
Brett@BrettBrough.com
Licensed Loan Officer
NMLS # 213001
Cityscape Home Mortgage
NMLS # 200326
http://www.brettbrough.com

I don't believe I can add much to this article.  Other than it's stunning how data with such a huge error potential can be used to predict what is happening in the housing market in December.

This is worth the read because we should all be aware of the numbers inside the numbers.

 To read the article just click on the chart below.

Everything About Housing - Census Report Released

So what about that housing thing?  Well now you can find out.  Thus, no matter how trivial, important, or obscure the American Housing Survey covers it.  Like this, "I can't live without knowing, -" why a government researcher would inquire whether a home's toilet was inoperable for six hours or more in the last three months.  But I'm sure it's a must know factoid for someone.

If you must know all 642 pages of it, it is available in PDF format at http://www.census.gov/prod/2008pubs/h150-07.pdf .

I thought I would share some important items with you incase you're wondering. 

• - Of the approximately 128,000,000 reported housing units, 9,293,000 were in condo or coop developments and 8,705,000 were mobile or manufactured homes.
• - The median size of a housing unit is 1,769 square feet with owner occupied units running about 30 percent larger than rental units.
• - 24,885,000 or approximately 1/3 of owner-occupied homes are owned free and clear of mortgages.
• - 32,963,000 homes have a single mortgage while 11,741,000 carry two and there are three or more mortgages on 847,000 owner occupied homes.
• The median lot size occupied by single family houses is .35 acre.

If you would like to read the entire article, you can click here:  http://www.mortgagenewsdaily.com/10152008_housing_report.asp

If you have any question or would like to visit about the information or discuss what's going on in the Tulsa market please feel free to call me at 918-271-0062.

Brett Brough

Licensed Loan Planner